Mark Lister, 9 December 2020

The biggest news of the week was undoubtedly the surprise takeover offer for Infratil, by Australia’s largest pension fund, AustralianSuper.

The offer price equates to $7.43, as of the day it was announced. That’s 28 per cent higher than where the Infratil share price was at the end of last week, although that doesn’t necessarily mean it will be accepted.

The company’s Board has already come out and rejected it, noting it “materially undervalues” its assets and stating it has no intention of engaging with AustralianSuper at this time.

It’s normal practice to reject the first offer, and that won’t be the end of this saga. This could well be the first public salvo in what turns out to be a longer running negotiation.

Infratil listed on the NZX back in 1994, and since that period it has invested in many businesses, the bulk of which have had an infrastructure focus.

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Past investments have included Z Energy, Metlifecare and numerous airports around the world, among other things.

Not all of these have gone exactly as planned, although Infratil has had more wins than losses, which has led to a strong track record of returns to shareholders.

In the 20 years to the end of November, Infratil shares delivered a return of 19.0 per cent per annum, well ahead of 11.3 per cent from the broader NZ sharemarket.

In recent years, the key assets have been majority stakes in TrustPower and Wellington Airport.

In 2019 Infratil bought a half-share of Vodafone’s New Zealand business, while its most interesting asset today is arguably CDC Data Centres.

CDC is likely to benefit from the continued moves toward digitalisation and cloud-based storage, a theme which has grown in strength given the events of 2020.

AustralianSuper obviously has little interest in TrustPower, as the proposed offer is structured to give Infratil shareholders a direct holding of TrustPower shares as part of the payment.

That probably wouldn’t be a bad outcome for the Tauranga-based electricity company, as it would broaden the shareholder base, improve liquidity and free the business from Infratil’s majority control.

Another issue to consider is how Morrison & Co, the external manager of Infratil, will view the offer. The management contract is a lucrative investment for Morrisons, which has collected annual fees in excess of $100m in recent years. It might expect substantial compensation to give that up.

Any deal might also come under scrutiny from a number of government departments, and could require multiple regulatory approvals.

Back in 2008, the New Zealand Government stepped in and vetoed the takeover of Auckland Airport by a Canadian pension fund, on the basis it was a strategic asset.

It remains to be seen whether Infratil’s 66 per cent share in Wellington Airport is viewed similarly. The remaining third is owned by the Wellington City Council.

With Infratil now in play, investors might refocus on similar companies across our sharemarket, and could reconsider the value of these.

The electricity companies, infrastructure businesses like Vector and Chorus, as well as the likes of Spark and Port of Tauranga all share some of the attributes that will have attracted AustralianSuper to Infratil.

This offer is unlikely to get over the line in its current form, although it could well be merely stage one of discussions.

Infratil is obliged to at least consider it, and the company has a duty to investigate whether an appropriate level of value can be extracted from the suitor.

It’s hard to see this story playing out in full so close to the holiday period, although it could make early 2021 very interesting for the local sharemarket.

In the meantime, Infratil’s 18,000 shareholders have received an early Christmas present with the share price up 20-odd per cent on the back of this news.